A Better Alternative to Payday Loans?
The financial dangers of taking on a payday loan (a short-term, high-interest loan offered to people with weak financial histories) generally outweigh any benefits. For cash-strapped Americans who need to make rent or utility payments, though, payday loans are often the only viable source of cash.
But, according to a post on WiseBread.com, that might change soon: it seems that, in some parts of the country, a more consumer friendly alternative to payday loans is cropping up.
More Affordable Small Loans
Here’s a look at what might soon act as a better option for people looking to borrow a little money for a short amount of time.
- FDIC pilot program: Between February 2008 and February 2010, the Federal Deposit Insurance Corporation tested a program that allowed Americans to borrow up to $2,500 for a period greater than 90 days. Interest rates were capped at 36 percent (but were often less).
- Non-payment loan requirements: In addition to making regular payments on their loans, borrowers were often required to meet other criteria, such as opening and putting money into a savings account, taking a financial literacy class and more. These measures were instituted to reduce or eliminate a borrower’s need for small dollar amount loans in the future.
According to the FDIC’s web site, the experiment showed promising results in many of the volunteer test banks (28 across the country). Now, the question many consumer advocates are asking is when will such programs be more widely available.
Finding Affordable Loans Near You
If you’re in need of a loan but don’t have the credit score or history to qualify for a traditional bank loan, you may be able to find a small dollar amount lender near you that won’t charge punishing interest rates. Here’s what to look for:
- Check out your local banks: Sources note that national banks like Bank of America and Wells Fargo have not yet hopped on the small loan bandwagon, but various regional banks across the country do offer a variety of small loans. To find out what your options are, call some local banks and ask about their non-traditional lending programs.
- Visit a credit union: If no banks in your area offer smaller loans, check out some of the credit unions. Because they’re structured on a more community-centric model, credit unions may have more alternatives for local members without other options.
It’s uncertain right now whether these programs will catch on (and even whether they’ll get some sort of national support to help them grow), but it seems that the FDIC’s chair, Sheila Blair, hopes they do.
To learn more about small dollar amount loans and how they might help you, visit the FDIC’s web site (link above) or check out the full WiseBread.com article.
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